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Abstract

This paper empirically examines the influencing role of internal and external factors on the inflation rate for two emerging economies, Egypt and Mexico. The price level over the long run is affected by both internal and external factors in both countries. It was also found that both fiscal and monetary policies can be used to fight inflation over the long run. Furthermore, both the US interest rate and price affect the price level with the same sign in both countries over the long run. However, over the short run while as we expect the US price affects the price in Mexico it does not have any effect on Egypt’s price.

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